GSK chief to address China scandal at results: sources

Ben Hirschler

Sunday, 21 Jul 2013 | 4:17 PM ETReuters

SHARES

Peter Parks | AFP | Getty Images

GlaxoSmithKline Shanghai headquarters

GlaxoSmithKline Chief Executive Andrew Witty will detail what action the drugmaker is taking in response to allegations of bribery against it in China when he presents quarterly results on Wednesday, sources familiar with the matter said.

Chinese authorities are investigating GSK deals with travel agencies worth up to 3 billion yuan ($489 million) that they allege were used to facilitate bribes. The scale of the payments has fueled debate as to whether GSK surveillance systems were up to the job of spotting wrongdoing.

Although an internal company investigation has yet to conclude, people familiar with the matter said Witty would discuss what may have gone wrong in the scandal, which has rocked GSK's reputation and left its management in China in disarray.

"He will give his perspective on what appears to have gone on and how it can be put right," one of the sources said on Sunday.

GSK has run into problems despite conducting up to 20 internal audits in China each year, resulting in the sacking of dozens of staff for misconduct. In 2012, GSK dismissed 312 staff for policy violations worldwide, according to its annual Corporate Responsibility report, of which 56 were in China.

Britain's biggest drugmaker, which has described the allegations against it in China as "shameful", has already hired Ernst & Young to conduct an independent review of its systems in the country and sent three senior executives to lead the response on the ground.

A company spokesman said it was also keeping all relevant regulators updated as appropriate. The charges from China could expose GSK to prosecution under Britain's Bribery Act and the U.S. Foreign Corrupt Practices Act.

GSK declined to comment further ahead of the second-quarter results, which are due at 1100 GMT on July 24.

Despite the crisis, the company's shares have held up—reflecting the fact that China accounts for only around 3 percent of sales.

Bank of America Merrill Lynch analysts said in a research note that the financial impact of the affair was likely to be limited, although the issue would be a "key topic" at the results update.

Others snared in China

While the spotlight remains firmly on GSK, Chinese authorities are also probing other companies and individuals involved in the pharmaceutical sector as part of a broad-based drive to root out corruption.

Two people familiar with the situation said at the weekend that Shanghai police had arrested a British man, Peter Humphrey, who runs an international business risk advisory firm that has worked with drug companies including GSK.

Humphrey— the founder of ChinaWhys, which says on its website that it aims to guide multinationals through "the labyrinth" of risks and opportunities in China—could not be reached for comment.

Last week, Chinese authorities also visited the Shanghai office of Belgian drugmaker UCB. A UCB spokesman said the visit was part of a wider investigation that included other drug companies, although he did not identify them.